including HUD sanctions due to performance,
prior liens which may be placed on the funding,
or flow of funds problems at the PHA level; and,
■Availability of a diversified stream of revenues,
especially important at higher rating levels.Essentiality, Longevity, And Predictability
In evaluating the history of public housing, three
elements are clear contributors to the creditworthi-
ness of capital funding:
■The essentiality of housing for low and very low-
income people;
■The long track record of funding for public hous-
ing by the federal government; and,
■Increasing predictability of funding levels for
individual public housing authorities.Essentiality
The need for the public housing program is at the
heart of gauging the federal government’s continu-
ing commitment to the program. A review of the
demand for public housing, the general dearth of
affordable rental housing, and the likely continua-
tion of the undersupply indicates a high degree of
likelihood that public housing will continue to be
the centerpiece of the nation’s supply of housing for
those in greatest need. The federal government is no
longer in the business of developing deeply subsi-
dized publicly and privately owned housing and has
moved toward a paradigm of mixed-finance,
mixed-income housing that can sustain affordability
by renting to higher-income tenants. The number of
existing deeply subsidized federally assisted units
continues to decrease due to the federal govern-
ment’s reduction in subsidy to fund new conven-
tional public housing and the conversion of
privately owned subsidized housing properties to
market rate status upon expiration of subsidy con-
tracts. Major production programs, such as the
Low Income Housing Tax Credit program,
although affordable, are targeted at higher-income
tenants. Some segments of public housing tenancy,
such as the elderly, who make up 32% of public
housing tenants, are expected to increase signifi-
cantly in coming years.Predictability Of PHA Funding Levels
As part of analyzing appropriation risk,
Standard & Poor’s carefully considered the method-
ology for allocation of Capital Funds to the individ-
ual housing authority. Further changes in the
Capital Fund allocations effected under the Quality
Housing and Work Responsibility Act of 1998
(QHWRA) greatly enhance the predictability and
stability of allocations to the individual PHAs by:■Establishing a formula for the Capital Fund
arrived at through negotiating rulemaking, which
helps to ensure consistency of methodology over
the years;
■Increasing predictability of the formula through
clarification of factors that can affect funding;
and
■Allowing for a replacement housing factor, under
which PHAs may receive funds over a period of
time for units that have been demolished.
Although there are many factors that could
change a PHA’s funding level, such as ongoing and
backlogged needs, impact of unit reduction, and
performance reward factors, projecting increases in
PHA funding would not be consistent with invest-
ment grade ratings. What is consistent with invest-
ment grade ratings is the development of a worst
case funding level.
Another significant factor that can affect PHA
funding levels are sanctions that HUD is within
its right to employ based upon PHA perform-
ance, discussed later under “The Importance of
HUD Approvals”.
For each PHA transaction, Standard & Poor’s
develops assumptions for funding levels based upon
the PHA’s actual Capital Fund allocation over time.
HUD approvals clearly state that sanctions in relation
to performance issues could not affect the level of
funding below what is needed to make annual debt
service payments while bonds are still outstanding.Assessing The PHA Managerial Capacity
As part of the rating process, Standard & Poor’s
reviews managerial capacity of the PHA as well as
elements of the organization’s structure and overall
mission that can affect the credit quality of the
CFFP bonds. Standard & Poor’s reviews the PHA’s
redevelopment plan including scope of work, finan-
cial plan, and strategy to ensure completion of
work in a timely fashion. In addition, Standard &
Poor’s assesses the PHAs capacity to complete the
redevelopment plan, based on its past construction
and modernization performance, existence of insti-
tutionalized modernization procedures with checks
and balances, and any changes in the procedures
designed to address any needs for additional
resources based on the scope of the work planned.
Communication with HUD and timely submission
of one-and five-year plans are critical, as is the
PHAs history of timely obligating and expending
annually allocated modernization funds. Finally,
Standard & Poor’s looks at program and financial
oversight practices of the PHA, the board’s back-
ground and role in overseeing the PHA and the
project, and the experience, depth and capacity ofHousing286 Standard & Poor’s Public Finance Criteria 2007